Thermal coal miners well placed

A handful of locally listed thermal coal producers are in the prime position to benefit from rising energy prices.

Prices for thermal coal, used in electricity generation, have been steadily rising since September and Goldman Sachs expects no change.

Free on board Newcastle thermal coal was trading at $US97 a tonne at the start of October and has since risen to about $US107 a tonne. In South Africa it’s a similar story. FOB Richards Bay thermal coal was at about $US90 a tonne last month. Now it’s close to $US100 a tonne.

Mr Southwood also expects the seaborne coal market to tighten during the northern hemisphere winter, further pushing up prices.

Another interesting trend the broker noted was the convergence between FOB Newcastle and FOB Richards Bay thermal coal prices – a sign that Chinese demand for South African coal was increasing.

Traditionally, South African coal finds its way to other markets such as Europe, but production constraints in Indonesia and Columbia have created export opportunities in Asia.

Africa-based
Riversdale Mining
will likely hope demand in Asia for thermal coal keeps up. Riversdale is expected to produce 40 per cent thermal coal from its projects in Mozambique once they reach full scale production in late 2011.

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So far this year its shares have risen 57 per cent, making it the best performing stock in the S&P/ASX 200 Energy Index. Riversdale is also leveraged to rising coal demand in India. Tata Steel owns a 24 per cent stake in the company.

NSW-based
Whitehaven Coal
has one of the biggest exposures to thermal coal, about 70 per cent of its production. Up 30 per cent this year, is the third best energy index stock.

The miner is continuing to expand production, which rose 5 per cent in the September quarter to just over 1 million tonnes. Meanwhile, development at its Narrabri project is on track, but it is finding it hard to recruit experienced staff despite getting more than 700 applications.

Coal & Allied
is another miner with exposure to thermal coal. Almost 75 per cent of coal it produces is thermal. C&A is majority owned by
Rio Tinto
– the world’s third largest miner has a 75 per cent stake in the company. So far this year C&A is up 42 per cent, outpacing Rio, which has gained 11 per cent.

Macarthur Coal
takeover target
Gloucester Coal
is another producer with exposure to thermal coal. About 60 per cent of its coal produced on the mid-NSW coast is thermal.

This year Gloucester shares have advanced 28 per cent, but since late September they have weakened, dropping 16 per cent from the stock’s 12 month high of $12.70.